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U.S. to Buy Stakes in 'Broad Array' of Banks

Monday, 13 Oct 2008 03:39 PM

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WASHINGTON — The United States plans to buy stakes in a "broad array" of banks, the top official in charge of the country's 700-billion-dollar rescue package said Monday as he outlined more details.

"We are designing a standardized program to purchase equity in a broad array of financial institutions," Neel Kashkari, Treasury Secretary Henry Paulson's pointman on the massive program, told a meeting of bankers in Washington.

"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions," he said, according to the prepared text of his speech to the Institute of International Bankers.

Kashkari broadly outlined the new offensive to combat the worst global financial crisis since the 1929 market crash, telling bankers that in buying stakes in financial firms, the government would "also encourage firms to raise new private capital to complement public capital."

Kashkari, 35, is in charge of the Troubled Assets Relief Program (TARP), the 700-billion-dollar financial lifeline created through emergency legislation on October 3.

The former Goldman Sachs executive also named new senior recruits charged with running the progam drawn from both the private and public sectors, including Tom Bloom, chief financial officer of the Comptroller of the Currency who will be interim CFO.

Under the TARP, the government is authorized to take a wide range of exceptional measures, including the purchase of toxic mortgage-related assets from ailing financial institutions in a bid to unclog frozen credit flows.

The Treasury said it was to hold a meeting with leading bankers and the Federal Reserve later Monday to discuss a financial market stabilization initiative.

Some economists have criticized Paulson for initially proposing buying up the soured assets with the 700 billion dollars, arguing that directly injecting capital into troubled firms would be more effective in unblocking credit, the lifeblood of the economy.

But the revised legislation approved by Congress added provisions that made buying equity possible.

US economist Paul Krugman, a fierce critic of Washington's handling of the current financial turmoil, welcomed the Treasury's shift in focus after Britain announced Wednesday a plan to take direct stakes in banks.

"US Treasury officials now say that they plan to do something similar, using the authority they didn't want but Congress gave them anyway," said Krugman, who won the Nobel Economics Prize on Monday.

"The question now is whether these moves are too little, too late. I don't think so," he said.

Kashkari told the bankers that the Treasury is implementing its new authorities "with one simple goal — to restore capital flows to the consumers and businesses that form the core of our economy.

"Achieving this goal will require multiple tools to help financial institutions remove illiquid assets from their balance sheets and attract both private and public capital," he said.

He said the toolkit was being designed to shore up financial institutions "of all sizes."

Kashkari said the government has been working "around the clock" on the program in the 10 days since the law was passed.

"We have accomplished a great deal on many fronts. We are moving quickly — but methodically — and I am confident we are building the foundation for a strong, decisive and effective program," he said.

He also said the Treasury was working "very closely with both domestic and international regulators to understand how best to design tools that will be most effective in dealing with the challenges in our financial system."

He said seven teams had been created to develop policies and tools required under the TARP, and one of them is in charge of insuring the troubled assets of banks.

He said the Treasury was planning to recruit two auditing companies to oversee the rescue program.

"Throughout this process, we have kept in mind one clear priority: to protect the taxpayers by making the best use of their money.

"A program as large and complex as this would normally take months — or even years — to establish," he said. "We don't have months or years. Hence, we are moving to implement the TARP as quickly as possible while working to ensure high-quality execution."

A former Goldman Sachs vice president, Kashkari followed his boss Paulson, who had been chief executive of the Wall Street bank, to the Treasury, where he is assistant secretary for international economics and development.

Copyright 2008 AFP

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